A survey of the competitive strategies used by NGO Microfinance institutions in Nairobi

Abstract

The financial market is served by players who are formal, semi formal and informal. Among the players are NGOs that have been offering microfinance services. These NGOs are firms that are limited by guarantee and most of them were initially set up as non-profit making institutions. Some fundamental changes have taken place in the microfinance sector. They include increase in the number of players; NGOs, Cooperative Societies and Banks, reduced donor financing and increased donor pressure that these NGO MFls become sustainable. No funding was guaranteed and NGO MFls have had to rely on their customers and business to survive. All these factors have led to NGO MFls to employ various competitive strategies to survive. This study sought to establish and document the various competitive strategies used by NGO MFls in Nairobi to compete effectively in the industry. The study also sought to establish the competitive challenges faced by the respondents as they operate in the industry. There are 9 NGO MFls in Nairobi according to records, both at the NGO, Coordination Bureau and at the Association of Microfinance Institutions in Kenya (AMFI). Therefore a census study was carried out for the organizations. Data was collected through a questionnaire method. All the questionnaires were administered through the drop and pick later method due to unavailability of CEOs or their designates. The response rate was 56%. The findings of the study indicate that the respondents mostly employ strategies related to transaction processing. The most utilized strategies were identified as making the loan application process quick and simple, employing competent staff, easing the process of becoming a customer, making repeat loans processing quick and convenient, offering high quality services, ensuring loans are available when needed and ensuring there are sufficient funds at all time to meet savings withdrawal requests by customers. The least utilised strategies were identified as de-linking savings from loans i.e. not using forced savings to guarantee loans, allowing higher savings withdrawal frequencies and giving staff incentives. Based on calculated mean scores the respondents identified imitation by other competitors, accessing finances to fund operations and loan portfolio, staff tum over, shared vision between management and the Board of Directors the 3 major competitive challenges.